Corporate reorganization (“Chapter 11” in the USA; suspensión de pagos in Spain) is a procedure of voluntary bankruptcy in which management is allowed to continue operating the company. The corporation must prepare a reorganization plan that proposes convert some debt into equity. Debtors can object. The court, however, can impose a plan that estimates the value of the company and allocates it among the different classes of creditors and even shareholders. Why, if the firm has a positive value, the creditors will not consent? Why the law allows the court to impose a plan on dissenting debtors?


The most obvious reasons are related to free riding among debtors and the possibility that the plan has positive value even if it hurts some creditors. See Posner (1998, pp. 443-444) for more detail.

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